IRS waives the rollover deadline after a broker mishandled an RMD

Plain-English summary

An individual asked the IRS to waive the 60-day deadline after a brokerage firm distributed the wrong amount from an IRA. A former broker had moved from one company to another, and the new company mistakenly believed that a required minimum distribution was still due even though the prior company had already made it. The new company distributed all of the taxpayer's investments in a specific mutual fund instead of only the required amount. The taxpayer was inexperienced with financial matters and did not recognize the error in time. The IRS accepted the company's mistakes as the cause of the missed deadline, waived the requirement under IRC § 408(d)(3)(I), and allowed 60 days from the ruling letter to contribute the amount to a rollover IRA.

Ruling snapshot

• Question: Could the IRS waive the 60-day rollover requirement after a company distributed the wrong IRA amount because of mistakes about an RMD?
• Outcome: Approved.
• Key authorities: IRC §§ 72, 401(a)(9), 408(d)(3), and 6110(k)(3); Rev. Proc. 2003-16.

Full text (IRS public release)

201403021
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
TAX EXEMPT AND GOVERNMENT ENTITIES
DIVISION
OCT 21 2013
Uniform Issue List: 408.03-00
Legend:
Taxpayer A =
IRA X =
Amount A =
Company A =
Company B =
Dear
This is in response to your request dated August 6, 2013, as supplemented by correspondence dated September 16, 2013, in which you request a waiver of the 60-day rollover requirement contained in section 408(d)(3) of the Internal Revenue Code (the “Code”).
The following facts and representations have been submitted under penalty of perjury in support of the ruling requested:
Taxpayer A represents that she received a distribution from IRA X totaling Amount A. Taxpayer A asserts that her failure to accomplish a rollover within the 60-day period prescribed by section 408(d)(3) of the Code was caused by mistakes made by Company A. Taxpayer A further represents that Amount A has not been used for any other purpose.
Taxpayer A’s broker moved from Company B to Company A and Taxpayer A transferred her Individual Retirement Account (“IRA”) to IRA X. In May of 2012, Company A mistakenly believed that a required minimum distribution ("RMD”) needed to be distributed for 2012. However, Company B had made the RMD for 2012 on January 3, 2012. Company A further complicated the problem by distributing all of Taxpayer A’s investments in a specific mutual fund rather than the amount specified for the RMD. Taxpayer A is not accustomed to dealing with financial matters and only began handling them since her husband’s death in 2011 and failed to recognize that amounts were distributed that should not have been.
Based on the facts and representations, you request a ruling that the Internal Revenue Service waive the 60-day rollover requirement contained in section 408(d)(3) of the Code with respect to the distribution of Amount A.
Section 408(d)(1) of the Code provides that, except as otherwise provided in section 408(d) of the Code, any amount paid or distributed out of an IRA shall be included in gross income by the payee or distributee, as the case may be, in the manner provided under section 72 of the Code.
Section 408(d)(3) of the Code defines, and provides the rules applicable to IRA rollovers.
Section 408(d)(3)(A) of the Code provides that section 408(d)(1) of the Code does not apply to any amount paid or distributed out of an IRA to the individual for whose benefit the IRA is maintained if:
(i) the entire amount received (including money and any other property) is paid into an IRA for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution; or
(ii) the entire amount received (including money and any other property) is paid into an eligible retirement plan (other than an IRA) for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received, except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to section 408(d)(3) of the Code).
Section 408(d)(3)(B) of the Code provides that section 408(d)(3) of the Code does not apply to any amount described in section 408(d)(3)(A)(i) of the Code received by an individual from an IRA if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in section 408(d)(3)(A)(i) of the Code from an IRA which was not includible in gross income because of the application of section 408(d)(3) of the Code.
Section 408(d)(3)(D) of the Code provides a similar 60-day rollover period for partial rollovers.
Section 408(d)(3)(E) of the Code provides that the rollover provisions of section 408(d) of the Code do not apply to any amount required to be distributed under section 408(a)(6) of the Code.
Section 408(d)(3)(I) of the Code provides that the Secretary may waive the 60-day requirement under sections 408(d)(3)(A) and 408(d)(3)(D) of the Code where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement. Only distributions that occurred after December 31, 2001, are eligible for the waiver under section 408(d)(3)(I) of the Code.
Rev. Proc. 2003-16, 2003-4 I.R.B. 359 (January 27, 2003) provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to section 408(d)(3)(I) of the Code, the Service will consider all relevant facts and circumstances, including: (1) errors committed by a financial institution; (2) inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error, (3) the use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); and (4) the time elapsed since the distribution occurred.
The information presented and documentation submitted by Taxpayer A is consistent with her assertion that her failure to accomplish a timely rollover was caused by mistakes made by Company A.
Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount A from IRA X. Taxpayer A is granted a period of 60 days from the issuance of this ruling letter to contribute Amount A into a Rollover IRA. Provided all other requirements of section 408(d)(3) of the Code, except the 60-day requirement, are met with respect to such contribution, Amount A will be considered a rollover contribution within the meaning of section 408(d)(3) of the Code.
This ruling does not authorize the rollover of amounts that are required to be distributed by section 401(a)(9) of the Code.
No opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the Code or regulations which may be applicable thereto.
This letter is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
If you wish to inquire about this ruling, please contact (ID ) at ( ) - . Please address all correspondence to
Sincerely yours,
Laura B. Warshawsky, Manager,
Employee Plans Technical Group 3
Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose
CC: